California Legal Brief

The Rule of Disney Platform Distribution v. City of Santa Barbara is that a municipal ordinance imposing a tax on video services applies to internet video streaming services when the ordinance uses "channel" in its ordinary meaning as a "programming source" rather than in the technical sense of a "transmission path," under circumstances where the ordinance was approved by voters to modernize and technologically neutralize video service taxation.

Appeal from judgment after administrative mandate petition denied in Superior Court, Santa Barbara County.

Plaintiff Appellants were Disney Platform Distribution, Inc., BAMTech, LLC, and Hulu, LLC — video streaming service providers who offer live and on-demand video content to millions of subscribers over the Internet.

Defendant Respondent was City of Santa Barbara — the municipal government that imposed a 5.75% video users' tax under Ordinance 5471 and assessed unpaid taxes totaling $612,337 plus penalties and interest for 2018-2020.

The suit sounded in administrative mandate challenging tax assessment. Appellants sought judicial review of administrative decision upholding City's determination that they owed video users' taxes for their streaming services.

The key substantive facts leading to the suit were that City adopted Ordinance 5471 in 2008 imposing a video users' tax, voters approved it as Measure G by 70.98%, City did not enforce it against streaming services for 14 years, then in 2022 City's Tax Administrator sent appellants deficiency notices for unpaid taxes on their streaming services from 2018-2020.

The procedural result leading to the Appeal: The trial court denied appellants' petition for administrative mandate, ruling that the ordinance applied to video streaming services because "channel" should be interpreted in its ordinary meaning as programming sources rather than technical transmission paths, and the ordinance did not violate federal or state constitutional provisions.

The key question(s) on Appeal: 1) Whether the ordinance applies to video streaming services when it requires use of "channels" and appellants argued streaming doesn't use transmission path "channels"; 2) Whether application to streaming violates the Internet Tax Freedom Act's anti-discrimination provisions; 3) Whether the tax violates the First Amendment; 4) Whether enforcement without new voter approval violated Article XIII C; 5) Whether City violated Public Utilities Code section 799 notice requirements.

The Appellate Court held that the ordinance applies to video streaming services because "channel" in the context of video services has the ordinary meaning of "programming source" (like NBC, CBS, ESPN) rather than the technical cable industry meaning of "transmission path," and the voters intended technological neutrality when approving the tax to modernize video service taxation and close loopholes.

The case is inapplicable when the municipal ordinance specifically defines "channel" in technical transmission path terms, when the ballot materials clearly indicate technical rather than ordinary meanings were intended, when the ordinance explicitly excludes internet-based services, or when the factual circumstances show discriminatory intent rather than technological neutrality.

The case leaves open how courts should interpret voter-approved general taxes under Article XIII C section 2(b) in contexts other than video service taxation, what specific procedural requirements apply when municipalities begin enforcing previously unenforced taxes against new market participants, and the scope of ITFA protection for emerging digital service categories not clearly analogous to traditional goods or services.